Admiral Group plc · LSE:ADM

Admiral — H1 2010 Earnings Presentation

65 slides from Admiral's earnings presentation, Aug 25, 2010

  1. Slide 1: 2010 Half Year Results

    2010 Half Year Results 25 August 2010

  2. Slide 2: Agenda

    Agenda  K i Chid Kevin Chidwick, i k Finance Fi Director Di t  Group results  Confused  Di id d Dividend  David Stevens, Chief Operating Officer  UK Market  Admiral vs Market  Henry Engelhardt, Chief Executive Officer  International businesses  Alastair Lyons, Chairman  S Summary  Questi

  3. Slide 3: Admiral is STILL different

    Admiral is STILL different Highly Highly 2004 Profi table 2009 ble Profi ta ✔ Fa s t F ast g Growin Growing 2008 isk Low R Profi ts Highly Strong ly Cas h Hi ghl y Low Risk bl e Pronfeitraatibve Ge le Profi ta F a st Growin 2005 F as t Profits ✔ g g Low Ris Growi n Strongly Ca k sh Profi ts sk Low R

  4. Slide 4: Highlights

    Highlights  Profit before tax up 21% at £126.9 million (H1 2009: £105.3 million)  Turnover up 33% at £720.5 million (H1 2009: £540.1 million)  Vehicle count up 23% to 2.37 million from 1.92 million at 30 June 2009  Profit from UK car insurance up 30% to £131.5 million (H1 2009: £101.2m)  UK anc

  5. Slide 5: Fast growing

    Fast growing Half yearly revenue (£m)(1) Historical annual revenue (£m)(1) 1,077 721 910 808 540 698 463 627 410 540 422 373 320 262 207 150 120 100 73 47 18 (1) Revenue comprises total premiums written + other revenue 5

  6. Slide 6: Admiral Group profits

    Admiral Group profits Half yearly profit before tax (£m) £126.9m 7% Annual profit before tax (£m) Key drivers £105.3m £215.8m £100.3m 11% Price £202 5m £202.5m comparison i 15% UK car insurance 86% 96% 104% N UK car Non insurance 2008 2009 1% -3% -2% -6% -4% -5% Overall result 21% H1 08 H1 09 H1 10

  7. Slide 7: UK car insurance profits

    UK car insurance profits UK car insurance Half yearly profit before tax (£m) £131.5m UK car insurance Key drivers Annual profit before tax (£m) 18% Underwriting £206.9m £101.2m result £179.9m £86.0m 22% 28% Profit commissions 27% 23% 17% Ancillaries 51% 51% 50% 2008 2009 5% 4% 4% UK car insurance 30

  8. Slide 8: UK car insurance – profit commissions increasing due to improved reinsurance terms

    UK car insurance – profit commissions increasing due to improved reinsurance terms Half yearly profit commissions & reserve releases 213% 36.9 Improved reinsurance terms: 22.7  Driving g the increase in p profit commissions 14.3  Consistent conservative reserving: we consider 123% both profit comm

  9. Slide 9: UK car insurance – strong ancillary income growth

    UK car insurance – strong ancillary income growth Ancillary contribution per active vehicle(1) 69.3 69.0 70.7 72.0 71 1 71.1 70 8 70.8 74 5 74.5 2006 2007 2008 2009 H1 08 H1 09 H1 10 Active average active vehicles 18% i increased d 18% tto 1 1.91m 91 Ancillary contribution(1) up by 27% 27% Ancillary

  10. Slide 10: UK price comparison – tough competition, advertising remains the main differentiator

    UK price comparison – tough competition, advertising remains the main differentiator Media spend* (£m) Confused market share** £32m £33m £30m £31m 32% 32% 31% 27% H2 08 H1 09 H2 09 H1 10 H2 08 H1 09 H2 09 H1 10 Confused Go Compare Compare The Market Moneysupermarket* Tesco Other * Source: Neilson ,

  11. Slide 11: UK price comparison, Confused H1 2010 TV advertisement lacked the required impact

    UK price comparison, Confused H1 2010 TV advertisement lacked the required impact Confused revenue (£m) Confused profits (£m) 53% 43% 80 39% 69 66 32% 37 40 37 37 27% 24% 26 2007 2008 2009 H1 08 H1 09 H1 10 26 16 Confused non non--car insurance revenues as 11 9 % total revenue 2007 2008 2009 H1 08 H

  12. Slide 12: Dividend

    Dividend 32.6p H1 08 H1 09 H1 10 27.7p 26.0p £m £m £m 17.5 Total equity 256 282 322 14.9 Goodwill (62) (62) (62) 13.7 Solvency capital (95) (116) (142) 99 104 118 15.1 12.3 12.8 Buffer (30) (30) (30) Dividend 69 74 88 H1 08 H1 09 H1 10 Normal dividend Special dividend H1 2010 – 32.6p per share Ex-di

  13. Slide 13: UK car insurance market

    UK car insurance market 13

  14. Slide 14: UK Market

    UK Market 1. UK Market 2. Admiral vs Market 14

  15. Slide 15: UK Market – 2009 headline results significantly worse

    UK Market – 2009 headline results significantly worse Reported p combined ratio after releases (%GWP) 122.0 103.6 107.5 2007 2008 2009 Source: EMB analysis of FSA returns 15

  16. Slide 16: UK Market – 2009 headline results significantly worse

    UK Market – 2009 headline results significantly worse Initial accident year combined ratio (%GWP) 123.0 115.1 115.3 p Reported combined ratio after releases (%GWP) 2007 2008 2009 Expense ratio Loss ratio (AY initial) 122.0 107.5 Reserve releases (%GWP) 103.6 11.5 84 8.4 7.8 6.5 2007 2008 2009 3.9 1.

  17. Slide 17: UK Market – significant claims cost inflation in 2009

    UK Market – significant claims cost inflation in 2009 in contrast to recent benign experience Frequency (%) ‐1 ‐3 1 ‐2 ‐2 ‐4 ‐3 ‐5 02 03 04 05 06 07 08 09 Frequency % YoY change % Average claim 10 8 8 6 3 2 2 2 02 03 04 05 06 07 08 09 Average claims YoY change % Source: EMB analysis of FSA returns 1

  18. Slide 18: UK Market – significant claims cost inflation in 2009

    UK Market – significant claims cost inflation in 2009 in contrast to recent benign experience Frequency (%) Cost per insured vehicle ‐1 ‐3 1 ‐2 ‐2 ‐4 ‐3 ‐5 9 02 03 04 05 06 07 08 09 Frequency % YoY change % 5 6 Average claim 1 1 1 0 ‐1 02 03 04 05 06 07 08 09 10 Cost per vehicle YoY change % 8 8 6 3

  19. Slide 19: But shouldn't the claims inflation have been offset by premium increases?

    But shouldn’t the claims inflation have been offset by high reported premium increases? 2008 & 2009 – premium Increases 25 Time lag for announced increases 23 to flow through into earnings: 20 Implied earned ncrease (%) equivalent* 2009 15 premium increase 14 (%) Premium in AA shoparound 10 9.1 (com

  20. Slide 20: So what happened to the 2009 premium increases?

    So what happened to the 2009 premium increases? Headline increases (per market indices) versus actual increases (per FSA returns) 20 Annual premium increases (%) 15 9 10 5 ‐ ‐5 ‐10 00 03 06 09 Increase in average premium (based on FSA returns) Earned equivalent AA market average*  Indices overstate

  21. Slide 21: So what happened to the 2009 premium increases?

    So what happened to the 2009 premium increases? Headline increases (per market indices) versus Difference between headline increases actual increases (per FSA returns) and actual increases (%)** 20 Annual premium increases (%) 15 9 9 10 6 4 5 2 ‐ ‐5 Ave '00 to '07 '08 '09 '06 ‐10 00 03 06 09 Suggest

  22. Slide 22: Indices following price comparison prices give a more realistic view

    Indices following price comparison prices give a more realistic view 2008 & 2009 – premium increases 25 Time lag for announced increases 23 to flow through into earnings: 20 Implied earned equivalent* 2009 premium Premium incrrease (%) 15 14 increase (%) 13 AA shoparound 10 9.1 (comp) Deloitte 8.8 5

  23. Slide 23: UK Market profitability: low investment income means a worse peak of pain

    UK Market profitability: low investment income means a worse “peak of pain” than in the past, even allowing for the growth of ancillary revenues 130 UK private motor market profitability Premium) 123 122 120 120 AY Combined Ratio (% P 110 99 100 91 90 80 70 60 50 88 89 90 91 92 93 94 95 96 97 98 99

  24. Slide 24: UK Market profitability: low investment income means a worse peak of pain

    UK Market profitability: low investment income means a worse “peak of pain” than in the past, even allowing for the growth of ancillary revenues UK private motor market profitability 130 Premium) 123 122 70 120 120 AY Combined Ratio (% P 115 60 110 99 50 100 91 40 90 30 es 80 Otherr income source %

  25. Slide 25: UK Market profitability: low investment income means a worse peak of pain

    UK Market profitability: low investment income means a worse “peak of pain” than in the past, even allowing for the growth of ancillary revenues UK private motor market profitability 130 Premium) 123 122 70 120 120 AY Combined Ratio (% P 115 60 114 110 110 99 50 100 102 91 40 90 88 30 es 80 Otherr i

  26. Slide 26: UK Market – the pain is triggering substantial increases in headline premiums

    UK Market – the pain is triggering a substantial increases in headline premiums in H1 2010 Market indices premium increases Jan 09 to Jun 2010 (NB only) 35 30 31 25 Cumulative C m lati e Cumulative C m lati e Premium increase (%) increases increases 21 6 months to 12 months to 20 Jun 2010 (%) Jun 20

  27. Slide 27: Admiral vs Market

    Admiral vs Market 27

  28. Slide 28: Admiral's rate of growth has accelerated during 2010

    Admiral’s rate of growth has accelerated during 2010 Admiral’s vehicle growth rate (YoY YoY%) %) 23% 17% 17% H1 09 H2 09 H1 10 Closing Vehicles 1,732 1,862 2,123 (‘000) 28

  29. Slide 29: Admiral's rate of growth has accelerated during 2010

    Admiral’s rate of growth has accelerated during 2010 UK Market: PC share of new business* (%) Admiral’s vehicle growth rate 71 67 65 (YoY YoY%) %) 62 20 51 22 22 24 27 PC growth 45 43 51 of ~17% 17% YOY 38 24 23% 2007 2008 2009 H1 09 H1 10 Price comparison ("PC") 17% 17% Internet (Non PC) H1 09 H2 0

  30. Slide 30: Admiral's rate of growth has accelerated during 2010

    Admiral’s rate of growth has accelerated during 2010 UK Market: PC share of new business* (%) Admiral’s vehicle growth rate 71 67 65 (YoY YoY%) %) 62 20 51 22 22 24 27 PC growth 45 43 51 of ~17% 17% YOY 38 24 23% 2007 2008 2009 H1 09 H1 10 Price comparison ("PC") 17% 17% Internet (Non PC) Admiral’s

  31. Slide 31: What's driven Admiral's increased share of PC business?

    What’s driven Admiral’s increased share of PC business?  Many of our competitors have reduced their footprint:  Reducing quotability  Pricing themselves out of certain segments  Quinn’s Quinn s partial withdrawal significantly reduced competitiveness for young drivers  We’ve followed rather tha

  32. Slide 32: What's driven Admiral's increased share of PC business?

    What’s driven Admiral’s increased share of PC business?  Many of our competitors have reduced their footprint:  Reducing quotability  Pricing themselves out of certain segments  Quinn’s Quinn s partial withdrawal significantly reduced competitiveness for young drivers  We’ve followed rather tha

  33. Slide 33: Admiral has put through significant price increases

    Admiral has put through significant price increases Admiral’s rate increases (NB & RN) 25 22 20 um increases ((%) 15 10 Premiu 5 ‐ Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Admiral (Qtrly %) Admiral (YOY%)  14% in H1 2010  22% year on year 33

  34. Slide 34: Admiral has put through significant price increases

    Admiral has put through significant price increases Admiral’s rate increases (NB & RN) Changes to Admiral’s average premium (NB & RN) 25 2009 22 Average written premium 20 £432 (per vehicle) um increases ((%) YoY increase (%) ‐1% 15 Average earned premium £427 (per vehicle) 10 Premiu YoY increase (%

  35. Slide 35: Admiral has put through significant price increases

    Admiral has put through significant price increases Admiral’s rate increases (NB & RN) Changes to Admiral’s average premium (NB & RN) 6 mths to 25 2009 June 2010 22 Average written premium 20 £432 £463 (per vehicle) um increases ((%) YoY increase (%) ‐1% 10% 15 Average earned premium £427 £438 10 (p

  36. Slide 36: Admiral has put through significant price increases

    Admiral has put through significant price increases Admiral’s rate increases (NB & RN) Changes to Admiral’s average premium (NB & RN) 6 mths to 3 mths to 3 mths to 25 2009 June 2010 Mar 2010 June 2010 22 Average written premium 20 £432 £463 £436 £490 (per vehicle) um increases ((%) YoY increase (%)

  37. Slide 37: Admiral's expense ratio performance vs market

    Admiral’s expense ratio performance vs market 30 29 29 29 27 27 27 28 16 16 17 17 17 15 15 15 15 2002 2003 2004 2005 2006 2007 2008 2009 H1 10 * Total Market (Earned Basis) Admiral UK (Written Basis) * Source: EMB analysis of FSA returns ** Ernst & Young projected ultimate loss ratios 37

  38. Slide 38: Admiral's loss ratio performance vs market

    Admiral’s loss ratio performance vs market 94 87 (‐1) 89 (+4) ( ) shows changes Dec 09 v Dec 08 80 (‐1) 73 (‐1) 69 (‐1) 71 (‐1) 68 (‐1) 72 71 72 74 (+3) 72 64 (‐1) ( ) shows changes Jun 10 v Dec 09 57 (‐1) 52 50 2002 2003 2004 2005 2006 2007 2008 2009 H1 10 Market (excl Admiral) reported loss ratio

  39. Slide 39: What caused a change in the best estimate ultimate loss ratio for 2009?

    What caused a change in the best estimate ultimate loss ratio for 2009? Roll forward of 2009 Ernst & Young projected ultimate loss ratio (% GWP) 74 71 3 10 13 Large g BI development p  Subject to a degree of volatility 61 61  Varied within a range of 8%-13% of GWP between ’05 and ’09 09 LR Large B

  40. Slide 40: The size of Admiral's combined ratio outperformance has increased in recent years

    The size of Admiral’s combined ratio outperformance has increased in recent years 123 119 116 109 101 96 98 95 88 89 91 88 87 79 72 68 65 2002 2003 2004 2005 2006 2007 2008 2009 H1 10 * Market (excl Admiral) loss ratio plus expense ratio ** Admiral projected ultimate loss ratio plus expense ratio *

  41. Slide 41: There's a lot going on.... the key points to take away

    There’s a lot going on.... the key points to take away  H1 saw rapid premium increases and there’s probably more to come  Admiral Ad i l is i ttaking ki share h whilst hil t iincreasing i rates t  23% year-on-year vehicle growth  14% % increase in rates in H1 2010  Near-term growth potential lo

  42. Slide 42: International

    Cumulative performance of all non-UK in 2008 International 42

  43. Slide 43: Still a modest investment

    Still a modest investment H1 2010 profit before tax (£m) (6.5) Admiral investment in international:  4 insurance operations 134 127  3 price comparison sites  Pre-launch costs (France) Total is less than 5% of UK profits Total UK profits Total investment in Total international* * Total UK profits

  44. Slide 44: It's not just the UK market that's seen rate increases

    It’s not just the UK market that’s seen rate increases Estimates of private motor market price increases in 12 months to June 2010* It’s difficult to get reliable pricing data in all of these markets... ...but 2010 looks promising: 26 25  UK & Italy are seeing significant rate increases  Positive

  45. Slide 45: A milestone - Balumba breaks into profit!

    A milestone - Balumba breaks into profit! Balumba vehicle count and profit/(loss) since launch Launched Oct 06 60 55 61 48 50 47 2 17 €25k (0.4) (0.5) (0.3) (0.3) Break into profit (0.9) (1.1) 3 ½ years (1.2) post launch Dec 06 Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Active vehicles at peri

  46. Slide 46: Balumba

    Balumba Jun 09 Jun 10 Active vehicles at period end 48,100 61,400 Total written premium (6 months) €9 1m €9.1m €12 2m €12.2m Underwriting year loss ratio (after 6 months) 79% 95% Written expense ratio 56% 53% Combined ratio 135% 148% Ancillary contribution per vehicle €73 €81 Admiral result (before

  47. Slide 47: AdmiralDirekt

    AdmiralDirekt Jun 09 Jun 10 Active vehicles at period end 37,500 31,300 Total written premium (6 months) €12.5m €9.9m Underwriting year loss ratio (after 6 months) 124% 85% Written expense ratio* 92% 89% Launched Oct 07 Combined ratio 216% 174% Admiral ancillary contribution per vehicle €6 €2 Admira

  48. Slide 48: ConTe – Rate increases AND growth

    ConTe – Rate increases AND growth ConTe’s active vehicles at period end ConTe’s base rate premium increases 14% 10% 58 1% 35 ‐5% 3 15 Dec 08 J n 09 Jun Dec 09 J n 10 Jun Dec 08 Jun 09 Dec 09 Jun 10 Rate increase in 6 month period Active vehicles at period end (000) 24% year year-on-year on year at e

  49. Slide 49: ConTe

    ConTe Jun 09 Jun 10 Active vehicles at period end 14,800 57,900 Total written p premium (6 ( months)) €4.6m €14.5m Loss ratio - underwriting year (after 6 months) 59% 83% Written expense ratio 139% 51% Combined ratio 198% 134% Launched May 08 Admiral ancillary contribution per vehicle €10 €12 Admira

  50. Slide 50: Elephant

    Elephant Jun 10 Active vehicles at period end 3 500 3,500 Total written premium (6 months) $3.3m Loss ratio - underwriting year (after 6 months) 70% Written expense ratio 123% Combined ratio 193% Admiral ancillary contribution per vehicle $12 Admiral result (before tax) ($1.3m) 50

  51. Slide 51: Non-UK price comparison

    Non-UK price comparison Total non‐UK price Spain France Italy comparison Jun 10 Jun 10* Jun 10* Jun 10 €000 €000 €000 €000 Total revenue 1 500 1,500 100 10 1 610 1,610 Total expenses (2,400) (800) (400) (3,600) Result (before tax)* (900) (700) (390) (1,990) Launch Mar‐09 Jan‐10 Feb‐10 TV Launch Sep‐

  52. Slide 52: The future... car insurance in France

    The future... car insurance in France 2005 Results, Mar ‘06  Plan to launch Q1 2011  Estimate pre-launch costs <€1m  Some facts about the French market*:  31 million private vehicles (UK: 26 million)  €14.7bn private motor premium (UK: €14bn**)  2008 combined ratio of 102% (UK: 115%)  D i t d

  53. Slide 53: 2010 – a great start!

    2010 – a great start! Record 2 international profits launches Strong dividend Balumba growth breaks into profit Return on Capital 57% UK Ancillary y income per vehicle grows No Debt to £74.50 S d Times Sunday Ti T Top Group 100 Company to Combined work for 10 years Ratio 89% Great 23% vehicle growth

  54. Slide 54: Appendix

    Cumulative performance of all non-UK in 2008 Appendix 54

  55. Slide 55: Appendices

    Appendices  Summary income statement  Balance sheet  Group p key ypperformance indicators  UK car insurance – Admiral’s claims experience  UK car insurance – reserving  UK car insurance - underwriting  UK car insurance coinsurance and reinsurance 2010  UK car insurance – 2009 result for 10 l

  56. Slide 56: Summary income statement

    Summary income statement UK car insurance Price comparison Non‐UK car insurance Other Admiral Group H1 08 H1 09 H1 10 H1 08 H1 09 H1 10 H1 08 H1 09 H1 10 H1 08 H1 09 H1 10 H1 08 H1 09 H1 10 Turnover 407.2 470.1 639.3 36.6 40.2 38.0 14.7 24.5 37.2 4.9 5.3 6.0 463.5 540.1 720.5 Total premiums written

  57. Slide 57: Balance sheet

    Balance sheet June 09 Dec 09 June 10 £m £m £m ASSETS p y, p Property, plant and equipment q p 11.5 12.1 11.7 Intangible assets 78.2 77.0 79.1 Financial assets 688.2 630.9 827.7 Reinsurance contracts 195.7 212.9 283.0 Deferred income tax 0.0 0.0 1.2 Trade and other receivables 36.2 32.7 45.9 Cash and

  58. Slide 58: Admiral Group key performance indicators

    Admiral Group key performance indicators KPI 2004 2005 2006 2007 2008 2009 H1 08 H1 09 H1 10 Revenue £m 540 627 698 808 910 1,077 463 540 721 ancial Group Fina Customers 1,040,700 1,141,000 1,284,700 1,490,800 1,745,800 2,076,000 1,629,500 1,921,500 2,372,500 Group pre‐tax profit £m 98.1 119.5 147.3

  59. Slide 59: UK car insurance: Admiral's claims experience

    UK car insurance: Admiral’s claims experience Admiral’s 12 month rolling average Admiral’s bodily injury claims Number of claimants per claims frequency as % total claims bodily injury claim (on 12 month rolling average basis) (on 12 month rolling average basis) 2.0 of total claimss No. claimants pe

  60. Slide 60: UK car insurance – reserving

    More questions: UK car insurance – reserving Loss ratio development by underwriting year 90 89 88 85 87 84 82 84 79 9 79 80 79 76 78 73 75 75 74 70 72 69 67 70 65 67 63 60 56 57 59 54 58 53 2003 2004 2005 2006 2007 2008 2009 H1 10 Underwriting Year 2003 Accounts 2004 Accounts 2005 Accounts 2006 Acco

  61. Slide 61: UK car insurance – underwriting

    UK car insurance – underwriting 5% 7.5% 7.5% 6.25% 10% 8.75% 5% 6.25% 10% 10% 10% 8.75% 10% 5% 40% 7.5% 65% 55% 40% 60% 50% 45% 35% 12.5% 25% 27.5% 27.5% 27.5% 25% 25% 22.5% 2006 2007 2008 2009 2010 2011 2012 Underwriting Year Ad i l Admiral O i Option M i h Re Munich R S i R Swiss Re H Hannover Re

  62. Slide 62: UK car insurance co-insurance and reinsurance 2010

    UK car insurance co-insurance and reinsurance 2010 Munich Re Swiss Re New Re Hannover Re Munich Re (pre 2007) Share of premium 45% 7.5% 10% 10% 65% Term To at least Dec 2016 Ends December 2011 2002 to 2006 Cost to Admiral Variable, depending Fixed (not disclosed) Fixed – 1.7% of Fixed – 1.7% of Vari

  63. Slide 63: UK Car insurance – 2009 result for the largest private motor insurers

    UK Car insurance – 2009 result for the 10 largest private motor insurers 160% NIG, 3% ported combiined ration (net releasess) 140% Churchill UK Ins, 8% AXA, 4% 120% 5% RSA 5% RSA, Esure, 6% Aviva, 5% Fortis, 6% Direct line, 13% 2009 Rep 100% Admiral, 7% 80% ‐35% ‐25% ‐15% ‐5% 5% 15% 25% Change in av

  64. Slide 64: Admiral's brands

    oe Admiral’s brands Fresstrector com cone com ChiaK€yzait Tu Comparador de Seguros Diamond @ Elephant Pepoenecs ee, ——~ Contleiit I. Wletymxfr Ferapiator AsmitalDiroit.ce

  65. Slide 65: Disclaimer notice

    Disclaimer notice The information contained in this document has not been independently verified and no representation or warranty, express or implied is made as to, implied, to and no reliance should be placed on, on the fairness, fairness accuracy, accuracy completeness or correctness of the infor

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